Student Loans Slow Economic Recovery — It’s Personal

It is a big social experiment that we’ve accidentally decided to engage in. Let’s send a whole class of people out into their professional lives with a negative net worth starting at minus tens of thousands of dollars. Those minus signs have psychological impact and a dollars-and-cents impact on what you can afford, too. {{1}}[[1]]Paraphrase of a quote by Kevin Carey, director of the Education Policy Program at the New America Foundation, a research group based in Washington.  From a NYTimes article published May 11, 2013.[[1]]

Those words appeared in print on the same day that I (once again) graduated last Saturday.{{2}}[[2]]No, I don’t need another degree and I don’t plaster my wall with diplomas.  It’s just the way the educational system works — you take classes, you pass, eventually they make you graduate.[[2]]I’ll get to the negative net worth part in a minute, but first I want to briefly touch on classes of people entering professional lives.  My newly-minted dual undergraduate degrees in Economics and Psychology make me an economist, in the sense that I can apply for some jobs as an economist, but not a psychologist, in the sense that I can’t apply for any jobs in that field unless I get a graduate degree and a license.  Economists turn into butterflies quicker than psychologists.  

This feels like deja vu all over again to me, as an Audiologist and perhaps to many readers as well.  We get undergraduate educations in Communication Disorders or the like, but cannot hang out our Audiology shingles because we remain uncredentialed caterpillars. Butterfly status  requires a graduate degree, which used to be a Master’s and now is a clinical doctorate.  It’s taking longer and costing more to become a butterfly these days. Meanwhile, economists and hearing aid dispensers are getting jobs and salaries.

The Negative Net Worth of the Educated Masses

I’m lucky — I attended a state school, received small academic tuition grants, and got lots of credit from previous transcripts.  I also had a good job and excellent student health insurance at low cost.  Add to that, I received a stellar education in economics.  Yet, I am writing a check this week for over $20K to cover my student loans.  That’s more than it cost for my entire Audiology training (BA, MA) back in the day.  Yet, it is the latter that generates my income and I do not expect my income to increase because I’ve gained more education.  Just because you’re a butterfly doesn’t mean you get paid more.

As a mother, I’m also lucky.  My sons graduated 6 months apart, one from an undergraduate private university program, the other from a public university MBA program.  Yet, I wrote checks this month for $50K to cover the MBA student loans of son #1.  I won’t even tell you how much the private undergraduate program cost for son #2… and will continue to cost for years to come as he assumes the student loans that accrued on top of what I paid.   They both have good jobs but their incomes are no match for interest rates on education loans. I don’t think they’re unique.  New graduates  may be pinned butterflies.

This probably sounds familiar to many readers as well.  I doubt any of us are student loan junkies, but either our own or our kids’ tuition costs are skyrocketing while student loans rates stay high and some rates are scheduled to double in July. All this is taking place in a weak economic environment in which the present generation has seen a 15% decline in real income since 2000, compared to the previous generation.  We’re luckier than our kids, even if we do assume their student debt loans.  I just sold my house and bought a small condo in the local debtor’s prison, so I’m feeling lucky.  How about you?

Recent college graduates — and here I’m thinking AuDs in particular — have to make decisions that previous generations did not.  Their debt-to-income ratios are likely too high to qualify them for home purchases in many markets; they spend less on major purchases in general and more on loan servicing; they may delay marriage and probably children until they can afford them.  This doesn’t put emerging AuDs in a very strong bargaining position when it comes to accepting jobs and negotiating on salaries. They are Price Takers and need anything they can get.  I imagine employers have picked up on that weakness, especially corporate entities that use Audiologists to get their goods to market on a large scale, and adjusted their cost of wages projections accordingly.

More Educated Labor at Lower Real Wages on the Horizon

Those with the most education and biggest student debt may not see big boosts in the incomes, but they are on the fast growing trajectory for jobs.  Occupations that require a Master’s, Doctorate or other professional degree are projected to grow by 21.7%, 19.9%, and 18%, respectively, over the next decade.  It makes me wish I owned a bank.  Really, the only place you can get long-term guaranteed interest rates of 6.8% is by investing in the future of students.  

Meanwhile, average salary structure increases for exempt-salaried employees and officers/executives did not exceed 2% in 2010 through 2012 (lower than inflation). Primary care physicians’ real wages have been in decline since 1995.  It makes me wish I owned a corporation, especially a healthcare corporation, especially if it were a hospital in New Jersey!  

Microeconomics Gets Personal for Professionals

Economically, it’s good when people and businesses borrow money to buy stuff and invest in their businesses.  Low interest rates encourage borrowing and investment, thereby growing the economy. It’s bad when markets quit spending. High interest rates and high debt discourage spending, turning us into savers (at best) and debtors, both of which contract the economy.  High interest rates encourage saving and hurt those who are in debt. Student debt in the US is over $1 Trillion with high interest rates that are an annual political football event.  In case you think I’m exaggerating, consider that total student loan debt is now greater than total credit card debt.  Holy Cow!  

Consider another quote from the May 11th article I started with:  

Student loan debt is not only constraining young adults, but also, at least in the near term, holding back the recovery itself, some economists say. The shadows might remain even as the economy picks up, by making young workers more cautious when it comes to decisions about their careers and their finances. 

Audiologists may be butterflies but we are not immune to economic effects.  Past posts make the points that jobs in audiology are growing rapidly while salaries are low relative to other fast-growing occupations that require far less investment in education.   Along with everybody else, and as pointed out earlier in this post, new AuDs are undoubtedly cutting down on major purchases, finding they can’t qualify for mortgages, skipping milestones like marriage and kids, maybe even skipping their daily Starbucks. The convergence of student debt, high locked-in interest rates, a just-recovering economy, rapidly emerging disruptive innovation, outsourcing, substitute products, and other economic factors creates a global economic climate that trickles down to rain on our profession, taking a bite out of us now and maybe bigger bites in the quantity or quality of students we attract and retain in the future.  

Butterflies, climates that trickle and bite, debtor’s prisons, loan junkies, Holy Cows.  Lots of mixed metaphors in this post, but hey, it’s a mixed up economic situation and who am I to try to straighten it out?  I only have an undergraduate degree in economics.  Technically, I’m a moth, not a butterfly.  

Kevin Liebe, AuD is guest editor starting next week and maybe he’ll straighten things out.  He’s doing a series of posts on the cost of an AuD education and perceptions of current students and recent graduates.  We’ll see how cautious they are in their career decisions and how happy they are with their education choices.  

Photo courtesy of karen’s whimsy